CLA-2 CO:R:C:V
Area Director of Customs
JFK Airport Area
Jamaica, New York
RE: Decision on Application for Further Review of Protest
Nos. 1001-6-007729, 1001-6-005758
Dear Sir:
This is in reference to the above-noted protests filed on
behalf of (company name) (hereinafter referred to as importer),
in connection with the appraisement of imported merchandise
pursuant to section 402(b) of the Tariff Act of 1930, as amended
by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(b)).
FACTS:
The importer purchases wedding gowns from a manufacturer in
Taiwan and imports them into the United States. With respect to
the entries in question, the importer purchased fabric and trim
and resold them to the manufacturer in Taiwan at a price less
than that paid by the importer. The Taiwanese manufacturer then
utilized the fabric and trim in producing the final imported
product sold to the importer.
During the manufacturing process, it was discovered that a
portion of the fabric was defective and could not be used to
produce the finished garments. Therefore, the manufacturer
charged the importer a "waste factor" which was approximately
equal to five or ten percent of the actual fabric cost of the
garments.
In addition, the manufacturer charged a financing fee to
the importer. This was due to the large expenditure by the
manufacturer for the purchase of the fabric and trim in advance
of the manufacture and shipment of the final product. The
importer states that it agreed to pay a 5% or 8% financing fee to
the manufacturer.
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ISSUES:
Whether the amount paid by the importer to the manufacturer
to account for the defective fabric previously sold to the
manufacturer by the importer is included in the "price actually
paid or payable" for the final imported product.
Whether the financing fee charged by the manufacturer to
the importer is to be included in the "price actually paid or
payable" for the final imported product.
LAW AND ANALYSIS:
The preferred method of appraisement, transaction value, is
defined in section 402(b) of the TAA as:
. . . the price actually paid or payable for the
merchandise when sold for exportation to the
United States, plus amounts equal to . . . the value,
apportioned as appropriate, of any assist. . . .
The fabric provided to the manufacturer by the importer at
a reduced cost is clearly encompassed by the definition of an
assist which includes "materials, components, parts, and similar
items incorporated in the imported merchandise." See, section
402(h)(1)(A)(iii) of the TAA. If the assist was acquired by the
importer from an unrelated seller, the value of the assist is the
cost of acquisition, including the transportation costs to the
place of production.
It is important to note that the statutory language in
section 402(h) of the TAA which requires that the assist be
supplied by the buyer free of charge or at a reduced cost, is met
by the mere fact that the buyer is paying for the expense
incurred in transporting the assist to the place of production.
The importer states that since the defective fabric was
discarded and never used by the manufacturer, it was not
incorporated into the final imported product as required by the
above definition of an assist. Headquarters Ruling No. 543093
dated April 30, 1984, states the following:
. . . components which are destroyed, scrapped,
or lost, and which are not physically incorporated
into the imported article are not assists under the
TAA.
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If this were the issue presented, we could agree that the
discarded fabric does not constitute an assist since it is not
incorporated into the final imported product. However, the
Taiwanese manufacturer and the importer chose not to do business
in this manner. Rather than claim an allowance with respect to
the discarded fabric in determining the value of the assist, the
manufacturer added an amount to the "price actually paid or
payable" by the buyer. The manufacturer chose to recoup the loss
of that fabric by adding a certain percentage to the price of the
final imported product. The fee is merely a cost of doing
business which the manufacturer included in their price to the
buyer.
There is no authority in the TAA to exclude that amount
from the "price actually paid or payable" from the buyer to, or
for the benefit of, the seller.
Please note that section 402(b)(1) of the TAA provides that
the price actually paid or payable for imported merchandise shall
be increased to reflect the value of an assist only to the extent
that such amount is not otherwise included in the price actually
paid or payable. Therefore, if the manufacturer in this case is
recouping the expense of the purchase of the fabric from the
importer by adding that amount to the final price actually paid
or payable, then this section applies and the value of the assist
is not added to the price actually paid or payable since it is
already included in the price paid. If this is the case, then
the same analysis described above applies in concluding that the
addition of the "waste factor" to the price actually paid or
payable is proper, i.e., there is no authority in the TAA to
deduct that cost from the price paid by the buyer.
The second issue involves the dutiability of the interest
charges paid by the buyer to the Taiwanese manufacturer. With
regard to this issue, T.D. 85-111 dated July 17, 1985, is
pertinent. In that decision, Customs stated that interest
payments, whether or not included in the price actually paid or
payable for imported merchandise, should not be considered part
of dutiable value provided the following criteria are satisfied:
(1) The interest charges are identified separately
from the price actually paid or payable;
(2) The financing arrangement in question was made in
writing;
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(3) Where required by Customs, the buyer can demonstrate
that
- the goods undergoing appraisement are actually
sold at the price declared as the price actually
paid or payable, and
- the claimed rate of interest does not exceed the
level for such transaction prevailing in the
country where, and at the time, when the financing
was provided.
From the information that you have provided, there is
nothing to indicate that any of the above criteria are not
satisfied. It appears as if there is no dispute that the
interest charges paid by the buyer are properly excluded from the
transaction value of the imported merchandise.
HOLDING:
In view of the foregoing, the protests should be denied
with respect to the issue regarding the inclusion of the "waste
factor" in the price actually paid or payable. As indicated
above, the fee is properly included in the price actually paid or
payable.
The protests should be granted with respect to the issue
regarding interest charges. The payments made by the buyer for
the interest charges are not part of the price actually paid or
payable.
A copy of this decision should be attached to the Form 19,
Notice of Action, to be sent to the protestant.
Sincerely,
John Durant, Director,
Commercial Rulings Division